1. Home Student Resources Chapter 1 Multiple choice
questions
Multiple choice questions
Try the multiple choice questions below to test your knowledge of Chapter 1. Once you have
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This activity contains 21 questions.
__________ is concerned with the acquisition, financing, and management of assets with some
overall goal in mind.
Financial management
Profit maximization
Agency theory
Social responsibility
Jensen and Meckling showed that __________ can assure themselves that the __________ will
make optimal decisions only if appropriate incentives are given and only if the __________ are
monitored.
principals; agents; agents
agents; principals; principals
principals; agents; principals
agents; principals; agents
__________ is concerned with the maximization of a firm's earnings after taxes.

2. Shareholder wealth maximization
Profit maximization
Stakeholder maximization
EPS maximization
What is the most appropriate goal of the firm?
Shareholder wealth maximization.
Profit maximization.
Stakeholder maximization.
EPS maximization.
Which of the following statements is correct regarding profit maximization as the primary goal of
the firm?
Profit maximization considers the firm's risk level.
Profit maximization will not lead to increasing short-term profits at the expense of
lowering expected future profits.
Profit maximization does consider the impact on individual shareholder's EPS.
Profit maximization is concerned more with maximizing net income than the stock price.
__________ is concerned with the branch of economics relating the behavior of principals and
their agents.
Financial management
Profit maximization
Agency theory
Social responsibility

3. A concept that implies that the firm should consider issues such as protecting the consumer,
paying fair wages, maintaining fair hiring practices, supporting education, and considering
environmental issues.
Financial management
Profit maximization
Agency theory
Social responsibility
Which of the following is not normally a responsibility of the treasurer of the modern corporation
but rather the controller?
Budgets and forecasts
Asset management
Investment management
Financing management
The __________ decision involves determining the appropriate make-up of the right-hand side of
the balance sheet.
asset management
financing
investment
capital budgeting
To whom does the Treasurer most likely report?

4. Chief Financial Officer.
Vice President of Operations.
Chief Executive Officer.
Board of Directors.
The authors of your textbook suggest that you need to understand financial management even if
you have no intention of becoming a financial manager. One reason is that the successful
manager of the not-too-distant future will need to be much more of a __________ who has the
knowledge and ability to move not just vertically within an organization but horizontally as well.
Developing __________ will be the rule, not the exception.
specialist; specialties
generalist; general business skills
technician; quantitative skills
team player; cross-functional capabilities
The __________ decision involves a determination of the total amount of assets needed, the
composition of the assets, and whether any assets need to be reduced, eliminated, or replaced.
asset management
financing
investment
accounting
How are earnings per share calculated?
Use the income statement to determine earnings after taxes (net income) and divide by
the previous period's earnings after taxes. Then subtract 1 from the previously calculated value.
Use the income statement to determine earnings after taxes (net income) and divide by
the number of common shares outstanding.
Use the income statement to determine earnings after taxes (net income) and divide by

5. the number of common and preferred shares outstanding.
Use the income statement to determine earnings after taxes (net income) and divide by
the forecasted period's earnings after taxes. Then subtract 1 from the previously calculated value.
According to the text's authors, what is the most important of the three financial management
decisions?
Asset management decision.
Financing decision.
Investment decision.
Accounting decision.
The __________ decision involves efficiently managing the assets on the balance sheet on a
day-to-day basis, especially current assets.
asset management
financing
investment
accounting
Which of the following is not a perquisite (perk)?
Company-provided automobile.
Expensive office.
Salary.
Country club membership.

6. Which of the following is not normally a responsibility of the controller of the modern corporation?
Budgets and forecasts.
Asset management.
Financial reporting to the IRS.
Cost accounting.
All constituencies with a stake in the fortunes of the company are known as __________.
shareholders
stakeholders
creditors
customers
Which of the following statements is not correct regarding earnings per share (EPS) maximization
as the primary goal of the firm?
EPS maximization ignores the firm's risk level.
EPS maximization does not specify the timing or duration of expected EPS.
EPS maximization naturally requires all earnings to be retained.
EPS maximization is concerned with maximizing net income.
__________ is concerned with the maximization of a firm's stock price.
Shareholder wealth maximization
Profit maximization
Stakeholder welfare maximization
EPS maximization

7. Corporate governance success includes three key groups. Which of the following represents
these three groups?
Suppliers, managers, and customers.
Board of Directors, executive officers, and common shareholders.
Suppliers, employees, and customers.
Common shareholders, managers, and employees.
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